Postal dept's FDI move fails to deter foreign investors

The postal department’s proposal to cap foreign direct investment (FDI) in courier services and make small parcels and letters the monopoly of India Post has failed to deter the interest of foreign investors in this booming sector.

While the Overseas Courier Services Company of Japan has firmed up plans to invest here, existing foreign players like Fedex and DHL are also pumping in additional investments.

Overseas Courier Services of Japan recently won the Foreign Investment Promotion Board (FIPB) nod to invest in the country on condition that the clearance would be subject to government’s policy decisions on the sector.

The clearance has also been ratified by finance minister P Chidambaram, the sources said. Existing players have also settled down after the initial jitters over the postal department’s plans to impose fresh curbs to prop India Post.

The current feeling is that opposition from the commerce and industry ministry and other sections of the governments has put the postal department’s proposal on the back-burner.

As a result, Fedex is now pumping USD30m more through an acquisition to beef up its business here while DHL is planning significant investments in the next couple of years. It is expected that other international players would also take interest since the current signal from the government is that there is no going back on liberalising this sector. Confusion had arisen over FDI in courier services after the postal department proposed that foreign investment ceiling in the sector should be brought down to 49% from the existing level of 100%.

A number of foreign companies operating here, including Fedex and DHL, had expressed their concern through industry chambers like the Express Industry Council of India.

Citing India Post’s universal service obligation (USO), the postal department had called for an amendment to the Indian Post Office Act to give exclusive rights to the government-owned service for carriage and delivery of letters all across India. and collection of fee from private courier services was also proposed but the issue has been put on the backburner for the time being.

Following detailed deliberations, the FIPB allowed Japan’s Overseas Courier Services to pick up 76% stake in Overseas Courier Service India. The company plans to carry out the business of general carriers, couriers, baggage transporters, forwarding and clearing agents, packing and repackaging agents of courier services in India and abroad.

Even the department of posts supported the proposal at the FIPB meeting, subject to restrictions placed on the private service providers under Section 4 which reserves the right of carriage and distribution of letters to the government as of now. In the recent past, other courier companies have also approached the FIPB for approval. Recently, DPEX Ventures of Singapore was given the approval by the FIPB for undertaking courier activities including transport, storage and communication activities.

However, the company seems to have taken a cautious approach in not asking permission for the carriage and delivery of letters.

The delivery and carriage of letters has been the core activity of the department of posts and a major revenue stream. In case the proposed amendment gets through a number of courier companies may have to reverse their business decisions for the carriage and delivery of items such as letters. This means that only materials in the form of packages and letters will be allowed to be handled by private players-both Indian and foreign.